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Listen to Elmer's tone--if he implies that he's done for a while, Hoofy may get aroused!

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Good morning and welcome back to the trail mix snack. With time ticking by and the tape standing still, all eyes are on Elmer as he hikes towards the 'Ville. "We know that he'll lift 'em, that's just what he said," vibed Hoofy the bull of our fearless Fed head, "but when it's all over and we look ahead, the focus will be on performance instead." Will the big bad event let the bovine now vent or will Boo's motley crew pick up a new scent? We'll know soon enough as we roll up our sleeves and follow the minx through the soft autumn leaves.

With anxiety present on every order, it's no wonder the Minx has bipolar disorder! The Matador crowd is ready to rock as they lift every kind of four-letter stock. Those in Red Dye are waving good-bye as they ready to ride a new wave of supply. Both sides are gripping the handlebars uber-tight, viewing every tick with intense emotions and self-imposed pressure. It's enough to drive us batty if we try to digest all of the issues simultaneously! As such, and with a benevolent educational intent, I thought it might be useful to lick our finger, stick it in the air and see which way the wind chimes.

The War: Nobody likes to talk about it although most have an opinion on it. The fact of the matter is that we've got a slew of American kids stationed overseas with a vague exit strategy. Yes, there is a "grander plan" (although I doubt it's what most believe) and my intent isn't to stir the hornet's nest. But with the current psychology bubble, we must remain vigilant in our search for potential pricks. And, while some may disagree with this, our perception in the global community has suffered immeasurably during these last few years. That should (and will) permeate the global FX markets and devalue the dollar as soon as our Asian counterparts figure out how to unload their holdings without committing financial Hari Kari.

The White House: Let's see...we've got an incumbent who fibbed a bit on his reasoning for war and a challenger who hasn't displayed any semblance of leadership. The populous right outweighs the liberal left but the key to the November polls will be the muddled middle. Lotsa folks I've spoken to plan to "protest" the choices by exercising their right to abstain. I don't blame them--as an independent, I find myself looking for the lesser of two evils--and that plays right into the Dubya's hands. I pray that my sixth sense is askew and we don't see civil liberties suspended, the draft implemented and the war expanded. It's a scary juncture in global history and our hands are tied in many ways.

The Economy: There was a sigh of relief on the Street when jobs upticked, inflation downticked and growth sustained (albeit at a slower pace). Indeed, with stagflation chatter picking up, "disinflation" (which is a polite way of saying deflation) seemed like a welcome respite. But what do the markets want? Bonds are tellin' ya that the economy has cooled considerably. Recent blow-ups, inventory builds and back-end loaded quarters aren't givin' ya the warm and fuzzies. And Elmer's gonna hike?

Structural: This is where the bulls may have an edge. While the fabric of the foundation can tear anytime (lotsa weight on it), the existing establishment has a coordinated agenda and lots of ammo. They can dance between the elephants (stagflation and deflation) using fiscal and monetary policy as strings on the minxy marionette. It should be noted that a slew of stimulus has expired (remember 8% growth?) but this dog has alotta tricks up its sleeves--particularly into elections. As it stands, the corporate bond market is cool as a cucumber and demand is soaking up the new issuance.

Psychology: The wildcard. If the stress test bends (but doesn't break) the tape, the hedgies will try and gun 'em higher. And if they can plant the seed of underperformance in the mindset of the fund community, we could very well see a "long squeeze." Remember, as backwards as it sounds, alotta professionals would rather lose money with everyone else than make a little while others do better. It's the relative performance/other people's money thing but we must account for it as perception dictates reality.

Technicals: The two primary levels to monitor are S&P 1113-16 below and NDX 1400 above. Those are the respective 200-day moving averages and there are surely "stops" set on either side of the fence. Peripheral levels include BKX 98 (past resistance/current support), Russell 566 (200-day), Dow Jones 10,291 (200-day), XBD 130 (200-day and neckline), CYC 700+ (flirtation with all-time high), XAU 94.37 (200-day). The tape, in a conventional sense, is still somewhat extended (stochastics, percentage of stocks above the 50-day moving average) although it's moderated somewhat as a function of time and price.

There is more to the markets than a few bullet points and the trick isn't to peg them all--it's to assimilate what matters most and how the rest of them factor into the minxy brew. That confluence, in my view, will hold the key to the vault as we edge through the end of the third quarter and eyeball 2005. In my estimation, we're currently in a tug-o-war with the structural elements on one side and sluggish fundies on the other. Psychology is stuck in the middle with you and the direction of that particular metric will likely tip the scales.

We power up this Tuesday pup to find global markets a touch higher in front of Elmer's big day. The dollar index is off 65 bips, the metals are stretching a percent higher, stateside futes are marginally green and earnings are hittin' the tape. There have been a few pre-announcements this morning (I think more are on the way) but we've also gotten "better" earnings from both Lehman (LEH:NYSE) and Goldman (GS:NYSE). I've traded the financials for 14 years and can tell you that rear-view numbers aren't the catalyst for the future price action of this sector. Regardless, this complex will be a primary tell as we find our way through today's fray. Expect a tale of two sessions--one before the FOMC and one after.

Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at todd@minyanville.com.

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